Borrower-lender communication is key
Nov. 9, 2026
By Mary Hightower
University of Arkansas Division of Agriculture
Fast Facts
- Communication key to prevent ‘distressed’ designation
- Farm Credit borrowers have rights in distressed loan situations
(756 words)
FAYETTEVILLE, Ark. — Farming is expensive.
For example, a new combine alone can run between $400,000 to $1 million. Farmers can use 2-4 gallons per acre of diesel just for tillage, plus whatever is needed to run irrigation pumps during growing season. Then there’s the cost of seed for use over hundreds or thousands of acres, plus fertilizers and controls for crop-hungry insects and diseases.
Coupled with low commodity prices, the financial challenges have been severe, especially in Arkansas, which led the nation in farm bankruptcies in 2025 and led the nation again in the third quarter of 2026, according to an analysis by the National Agricultural Law Center.
Attorneys with the center said that Farm Credit borrowers whose loans are determined to be “distressed” are entitled to certain protections under Farm Credit Act of 1971.
“Agricultural production requires large amounts of capital, leading many producers to borrow money and incur large debts,” said Mary Eichenberger, staff attorney for the National Agricultural Law Center.
“Producers may finance their operation with loans from commercial banks, processors, equipment dealers, input suppliers, the Farm Service Agency, or the Farm Credit System,” Eichenberger said. “Despite receiving financial assistance, a producer may still experience financial difficulties due to rising input costs, market changes, weather events, or disease outbreaks.
“These financial stressors may leave the producer unable to generate enough revenue to pay off their loan,” she said. “When that happens, the path from loan default to collateral foreclosure may depend on the type of loan, collateral, loan agreement, or lender. The Farm Credit System, for example, has specific requirements for that situation.”
The Farm Credit System is the largest agricultural lender in the U.S., comprised of a nationwide network of cooperative banks and institutions, established by the Farm Credit Act of 1971.
“When a borrower enters into a loan agreement with a Farm Credit lender, they are legally obligated to follow the repayment schedule and pay back the loan principal and accrued interest,” she said. “Unfortunately, situations may arise that cause the borrower to miss a loan payment, or to fall behind in their payments.”
Missing a payment is one of many factors that may lead to a Farm Credit determination that a loan is “distressed.” A “distressed” determination triggers certain borrower rights and loan servicing options, and has the potential to lead to acceleration, liquidation, or foreclosure actions by the lender.
The Farm Credit System defines a “distressed loan” as one where “the borrower doesn’t have the financial capacity to pay according to its terms” and that exhibits one or more of the following characteristics:
- The borrower is demonstrating adverse financial and repayment trends.
- The loan is delinquent or past due under the terms of the loan contract.
One or both factors present a high probability of loss to the lender, Eichenberger said.
Borrower Rights
Following the farm crisis of the 1980s, the Farm Credit Administration created “Borrower Rights.” The protections given by borrower rights apply until the loan is no longer distressed or has been liquidated, she said.
Under the Borrower Rights requirements, once the lender has determined the loan is distressed, Farm Credit lenders are “required to provide written notice to the borrower stating the loan is distressed and the borrower has a right to request restructuring,” Eichenberger said.
The process of restructuring involves changing the terms of the loan to make repayment more manageable for the borrower. For Farm Credit borrowers, this may involve adjusting the repayment schedule, changing other loan requirements, or allowing the borrower to delay payments on the principal (the amount borrowed) or interest.
The lender may also recalculate the payment amounts over the remaining loan period — known as amortization — or agree to other financial concessions to help the borrower meet their obligations.
The purpose of restructuring, according to Eichenberger, is to enable the borrower to resume loan payments, which is ultimately beneficial for both the borrower and lender.
However, if the lender intends to pursue foreclosure as a potential remedy, they must send a second type of notice, also called a “45-day notice.” It notifies the borrower that the “loan may be suitable for restructuring” and also includes information about the restructuring process, copies of FCS policies and other borrower information.
The 45-day notice must make it clear that the loan, if not restructured, may be subject to foreclosure. It also starts the clock ticking in that foreclosure proceedings may begin no sooner than 45 days after that notice has been given.
After a borrower receives a foreclosure notice, the borrower must submit a plan for restructuring the loan. If the borrower doesn’t do so, the lender may pursue alternative actions, including foreclosure, after 45 days have passed, she said.
If the borrower’s restructuring application is denied, the borrower may request a review of the lender’s decision by the Credit Review Committee. If the committee affirms the lender’s denial, then the lender may pursue foreclosure against the borrower.
“It is important for Farm Credit System borrowers to communicate honestly and frequently with their lender,” Eichenberger said. “A strong knowledge of an operation’s financial situation can help prevent a loan’s ‘distress’ determination and help to establish a successful loan restructuring plan if it becomes necessary to do so.”
Resources:
- Between a Rock and a Hard Place: Distressed Farm Credit loans
- “Financing the Farm: A Law Bulletin Series on Legal Arrangements for Farm Financing.”
To learn about extension programs in Arkansas, contact your local Cooperative Extension Service agent or visit uaex.uada.edu. Follow us on Facebook and Instagram. To learn more about the Division of Agriculture, visit uada.edu. To learn more about ag and food research in Arkansas, visit the Arkansas Agricultural Experiment Station at aaes.uada.edu.
About the National Agricultural Law Center
Created by Congress in 1987, the National Agricultural Law Center serves as the nation’s leading source of agricultural and food law research and information. The NALC works with producers, agribusinesses, state and federal policymakers, lenders, Congressional staffers, attorneys, land grant universities, students, and many others to provide objective, nonpartisan agricultural and food law research and information to the nation’s agricultural community.
The NALC is a unit of the University of Arkansas Division of Agriculture and works in close partnership with the National Agricultural Library, a subsidiary of the USDA’s Agricultural Research Service. For information about the NALC, visit nationalaglawcenter.org. The NALC is also on X, Facebook and LinkedIn as @nataglaw. Subscribe online to receive NALC Communications, including webinar announcements, the NALC’s Quarterly Newsletter, and The Feed.
About UADA
The University of Arkansas Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, UADA conducts research and extension work within the nation’s historic land-grant education system.
UADA is one of 22 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on three university campuses.
Pursuant to 7 CFR § 15.3, UADA offers all its Extension and Research programs and services (including employment) without regard to race, color, sex, national origin, religion, age, disability, marital or veteran status, genetic information, sexual preference, pregnancy or any other legally protected status, and is an equal opportunity institution.
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Media Contact:
Phillip Powell
ppowell1@uark.edu